I'm writing a essay in one of my classes on the harmful effects of inflation (mainly in devolving countries like India.)

Here are my 3 main arguments as to why Inflation is harmful. I would also be interested in hearing as to why you think inflation is good (if you believe that)

1. Right from the beginning, inflation adds to states where two things are not the same of income and wealth. However, in its last phase, it is not longer able to do so because money stops to bean acceptable store of value. It is a generally agreed statement that states where two things are not the same reduce group social welfare and should be avoided gave/given, in the process, production activity does not suffer.

2. Every process of people making, selling, and buying things needs a continuousaddition to its productive ability to hold or do something for which it should encourage transfer of money from individuals to businesses. In a money process of people making, selling, and buying things, transfer of money from individuals to businesses happens when a part of money income is saved and moved from one place to another to the people or businesses who give money to help start businesses who, in turn, use it for investment and transfer of money from individuals to businesses. However, inflation, by its very nature, discourages saving activity. It makes consumption more attractive than saving.

3. Lower Exports--Higher prices of products that are bought and sold mean that other countries will find it less attractive to buy our products that are bought and sold. This will end up leading to a decline in exports and lower production and higher unemployment in our country.

" We need more videos of cat's playing the piano on the internet" - My art professor.

"Criticism is easier to take when you realize that the only people who aren't criticized are those who don't take risks." - Donald Trump

I took a cursory look at your arguments, and I'm freaking cringing. I'm not saying that to be a condescending _prick, but these arguments--and this mentality--is far too pervasive, and that it has any perceived merit whatsoever (former Fed Chair Paul Volcker has made similar arguments) is just disgusting.

Granted, I can't really blame you when even the so-called "greats" fall victim to this sh1t. I bet the textbooks even entertain the arguments: hell, Rick Mishkin's text did it, and he's fcking brilliant!

So, I'm not even going to read what you wrote--at least not yet.

The answer is a lot more complex than you're letting on, though. Inflation isn't necessarily good or necessarily bad: it depends.

The absolutely crucial question you must answer--and if you don't, you're falling victim to reasoning from a price change--is how the movement in inflation came to be. Is it the result of a positive or negative aggregate demand shock, which would push up and down on inflation, respectively, or a positive or negative aggregate supply suck, which would push down and up on inflation, respectively?

(Of course, over long periods of time inflation is "always and everywhere a monetary phenomenon, but let's consider shorter-run scenarios.)

Let's consider an increase an inflation, since for some God forsaken reason that's what people laser in on. How do we get an increase in inflation?

This would obviously be, all else equal, a really good thing. There might come a point where the economy is overheating--which is highly, highly unlikely, and most Phillips curve models are either (a) unoperative, as has been the case since the 1990s, or (b) only operative if we *discount* the accelerationist variant, whereby inflation and inflation expectations eventually trade off one for one.

That said, there's really no exact answer--and you can ask Ben Bernanke if you don't believe me--as to where the optimal rate of inflation actually lies. The Fed seems to think it's 2 percent, but what ultimately matter isn't the level of inflation, but (a) the credibility of that target, (b) the symmetry around that target and the impact on investor expectations of the path of future monetary policy, and (c) the relative *stability* around that path.

Let's say, for instance, that inflation stabilizes around 4 percent: inflation expectations are stable around 4, nominal interest rates adjust, and the Fed has kept NGDP growth under control.

Should we care? Has the real cost of living changed for anyone?

If you answered yes, you're falling victim to money illusion--conflating real and nominal variables. If your nominal wages rise by 4 percent and prices rise by 4 percent, real variables are unchanged: over longer periods of time, inflation--i.e., monetary policy--has no impact on real variables whatsoever: those are a function of longer-run supply factors, so the idea that inflation "steals wealth" from people is complete and utter bullsh1t.

(There actually is an argument for a higher trend rate of inflation, namely the problem of the "two zeroes"--the inability to slash nominal wages and to cut nominal interest rates materially below zero, which can be somewhat mollified with a higher inflation target, which would increase nominal interest rates (but not real interest rates, though there are ironically mechanisms through which it could raise equilibrium, and thus actual, real interest rates, but it would be indifferent to t he spread) and thus decrease the frequency of the zero lower bound.)

The final point I'd make here is that deflation is actually far more harmful than inflation insofar as it results from a negative AD shock: it increases real wages, which leads to layoffs because of downward nominal wage rigidity; it increases real debt burdens which increases default risk (debt deflation, via my good friend, Irvin Fisher) and can induce disturbances in the financial system; it tends to be self-reinforcing, especially if it feeds into expectations; it bids nominal interest rates downward, etc etc.

(b) If aggregate supply decreases, inflation will rise--this could result from a negative shock to productivity, a massive increase in taxes, and oil embargo and/or cataclysmically rising global commodity prices, tax or regulatory policy, a spike in inflation expectations, etc.

Unlike an AD shock, an AS shock is fcking vicious, and creates trade-offs for the Fed: inflation rises, which makes it want to tighten, but output falls, making it want to ease. I won't get into the elasticity arguments which would determine the magnitude or direction of its response, but it's a bit more complex than that.

In the case of a negative AS shock, yes, inflation is extremely harmful not *unto itself*, but by virtue of the shock which caused it, which itself is the actual culprit.

In reality, though, AS shocks tend to wear off fairly quickly unless they bleed into inflation expectations. That was the case in the 1970s, but in the post-Volcker era, inflation expectations are far better anchored--in fact, they're arguably stable, but anchored in such a manner that they've dipped *below* the Fed's target, as a function of policymaker's excessive focus on positive inflation gaps in their reaction function (which, by the way, haven't existed for a very, very long time)--and thus is an utterly meaningless concern.

I had a choice, Pro or Con inflation, and I merely chose Con because I believe it has harmful impacts on developing countries such as (India, Pakistan and Panama) but I'm going to have to read what you posted a second time, it's allot to take in, and to process.

" We need more videos of cat's playing the piano on the internet" - My art professor.

"Criticism is easier to take when you realize that the only people who aren't criticized are those who don't take risks." - Donald Trump

At 1/25/2016 8:51:52 PM, Rosalie wrote:I'm writing a essay in one of my classes on the harmful effects of inflation (mainly in devolving countries like India.)

That's a totally different argument from inflation in the United States or inflation generally, and is a function not of inflation itself, but of (a) the underlying cause and (b) the economic environment and the lack of a credible central bank.

Here are my 3 main arguments as to why Inflation is harmful. I would also be interested in hearing as to why you think inflation is good (if you believe that)

1. Right from the beginning, inflation adds to states where two things are not the same of income and wealth.

I don't even know what this means, and I actually study and write about this sh1t. This isn't written in English.

Again, inflation has zero impact on wealth, and only transitory short-run impacts which are fairly close to null in actually when you consider the associated trade-offs (e.g., inflation might rise, so people on fixed incomes might hurt a little, but (a) they're able to find employment and (b) their home prices are rising, so on net it fizzles).

However, in its last phase, it is not longer able to do so because money stops to bean acceptable store of value.

The value of money and the inflation have no such link: ignoring the typical velocity argument as to why money supply and inflation are disconnected (because you haven't explicitly made that argument), the exchange-rate value of the dollar is function of global policy and economic divergence, not of the inflation rate--though unruly inflation would surely push down on the exchange rate. If inflation is relatively stable, as it is in the US, this isn't an issue.

Case in point, if this argument were true, we should praise the ECB for the near-deflationary policies. Yet the euro is absolutely falling off a cliff, while the dollar soars. Fundamentals determine exchange rates, and reasonably moderate inflation as a sign of stable nominal GDP is conducive to a relatively higher exchange rate.

It is a generally agreed statement that states where two things are not the same reduce group social welfare and should be avoided gave/given, in the process, production activity does not suffer.

This isn't written in English. I literally feel like you're just stringing a bunch of words together without respect for meaning.

From what I *can* decipher, it's incredibly circular: it relies on unique claims that don't hold. Those claims are that (a) inflation exacerbates income and wealth gaps, which is hogwash (to the contrary, giant financial crises caused by self-reinforcing deflationary spirals--see Japan--do) and (b) inflation reduces welfare, which is only the cause in the midst of a permanent aggregate supply shock or a central bank that lacks credibility at bringing down inflation, meaning transitory shocks get built into expectations and priced into financial assets.

2. Every process of people making, selling, and buying things needs a continuousaddition to its productive ability to hold or do something for which it should encourage transfer of money from individuals to businesses. In a money process of people making, selling, and buying things, transfer of money from individuals to businesses happens when a part of money income is saved and moved from one place to another to the people or businesses who give money to help start businesses who, in turn, use it for investment and transfer of money from individuals to businesses. However, inflation, by its very nature, discourages saving activity. It makes consumption more attractive than saving.

Sigh.....

Savings is a function of income: without income--nominal GDP--you don't have savings. If nominal variables--i.e., inflation--fall precipitously as a result of a negative AD shock, real incomes fall as well. You might see a temporary spike in savings, as was the case in 2008, but that's because people are *paying down debt* (or deleveraging) in lieu of consuming, meaning that we see a self-reinforcing spiral whereby NGDP plummets further, it passes through to real variables, like employment, because prices are sticky, then NGDP falls again as consumption falls, defaults rise, more people pay down debt, etc etc etc.

In other words, without income, savings are totally meaningless.

Also, savings surely lends itself to higher potential growth, but the issue is--on a global basis, in fact--that savings is too bloody high. You could look at a Wicksellian S = I graph, for instance: there's some equilibrium in that graph that balances the incentive to invest (low rates) with the incentive to save (high rates). If rates go below that Wicksellian point, inflation rises; if above, inflation falls. On a global basis, we have an excess of savings -- due to demographics, inequality, EME industrialization, and more -- that Ben Bernanke and Larry Summers have been discussing for a while, and that completely stifles the potency of monetary policy by pushing equilibrium rates far into the neg.

Ironically, if inflation is low, nominal interest rates are low--meaning that returns to savings are even lower. If you try to raise nominal rates to "help savers," you push equilibrium rates even fcking lower, in which case savings over any meaningful horizon plummets further.

It's circular. To save, you need income. Income leads to savings, not savings to income. If prices were flexible, you and the Austrians would be right, but they're not and consequently you're not.

3. Lower Exports--Higher prices of products that are bought and sold mean that other countries will find it less attractive to buy our products that are bought and sold. This will end up leading to a decline in exports and lower production and higher unemployment in our country.

Let's see.... reasoning from a price change again, but I'll bite.

Let's say inflation rises: why is it rising?

Let's say our AD rises because other countries are doing better and buying more of our stuff. I don't see NX falling. The same is try if AD rises because of strong fundamentals in the US due to expansionary monetary policy because the US is such a large global power.

A rising dollar, even if I bought it, is a reflection of strong fundamentals relative to the rest of the world. A falling dollar is a stabilization mechanism, though it sure as hell isn't working for the euro.

Another point is that if inflation were to rise, nominal interest rates would rise, as would real interest rates. Real interest rates would tend to cause the dollar to appreciate, which would pull down on those interest rates and cause the dollar to depreciate, bolstering our exports.

Oh, and one more thing: you're totally wrong that higher inflation would discourage exports. Higher inflation would cause the currency, all else equal, to depreciate, which bolsters U.S. exports. But, again, it's a question of reasoning from a price change and there are obviously critical trade-offs at play.

I mean, I could go on for days.... there are reasons economists constantly talk with their "other hands."

I had a choice, Pro or Con inflation, and I merely chose Con because I believe it has harmful impacts on developing countries such as (India, Pakistan and Panama) but I'm going to have to read what you posted a second time, it's allot to take in, and to process.

Whoever wrote that prompt is a complete imbecile, for one, but that's horrible reasoning: there are idiosyncrasies to developing countries, like India, that might make extraordinarily high inflation -- and when we think of a country like Brazil, we're talking HIGH, UNSTABLE inflation and low output -- extremely painful. That's not the base case, nor is it representative of the most basic and universal economic models.

I had a choice, Pro or Con inflation, and I merely chose Con because I believe it has harmful impacts on developing countries such as (India, Pakistan and Panama) but I'm going to have to read what you posted a second time, it's allot to take in, and to process.

Whoever wrote that prompt is a complete imbecile, for one, but that's horrible reasoning: there are idiosyncrasies to developing countries, like India, that might make extraordinarily high inflation -- and when we think of a country like Brazil, we're talking HIGH, UNSTABLE inflation and low output -- extremely painful. That's not the base case, nor is it representative of the most basic and universal economic models.

Lots of reading to catch up on. O_O

Thanks. Give me a bit to read up on all of this, and comprehend it. :p

" We need more videos of cat's playing the piano on the internet" - My art professor.

"Criticism is easier to take when you realize that the only people who aren't criticized are those who don't take risks." - Donald Trump

At 1/26/2016 3:11:20 AM, Rosalie wrote:Thanks. Give me a bit to read up on all of this, and comprehend it. :p

Take your time.

So, like I said, I merely arguing as to why inflation is bad. I mean, like you stated, it can be good or bad, depending in the circumstances. I understand how some of my arguments may have been flawed up above, but they aren't wrong. They are all reasons as to why inflation is harmful. Now, what about these ideas--

-Price inflation has an immense effect on TVM. Then the real or estimated changes occurring in the rates of inflation leads to changes in interest rates. Which then leads me to my next argument that:

- Inflation decreases the purchasing power of a dollar and it's deprecation.

Also, inflation leads to a handful of consumers in making extensive speculation to derive advantage of high price levels. Inflation is merely bad socially, and for the economy.

I'm just trying to get some persuasive arguments for this damn paper. -.-

Sorry for grammar errors if any, using my phone.

" We need more videos of cat's playing the piano on the internet" - My art professor.

"Criticism is easier to take when you realize that the only people who aren't criticized are those who don't take risks." - Donald Trump

At 1/26/2016 4:20:35 AM, Rosalie wrote:So, like I said, I merely arguing as to why inflation is bad. I mean, like you stated, it can be good or bad, depending in the circumstances.

Then categorically condemning inflation as "bad" is a really bad idea.

I understand how some of my arguments may have been flawed up above, but they aren't wrong. They are all reasons as to why inflation is harmful.

But they are wrong. Some of them are patently wrong--take your argument on exports, for instance. It's true that, holding every else constant, a rise in prices in the US would reduce exports: but it would also cause the currency to depreciate, which would tend to boost exports. And then inflation would rise, bidding up nominal interest rates, which would cause the currency to appreciate, exports to fall, and continue until the so-called "long run" condition sets in and exchange rates are determined solely by fundamentals.

Then you said that it erodes wealth and exacerbates inequities. That's patently wrong: monetary policy has no distributional effects over any meaningful time horizon.

Then you said it discourages savings. I ripped that apart, too.

They're arguments, sure, and really bad ones at that.

Now, what about these ideas--

-Price inflation has an immense effect on TVM.

This is connected to the argument I made earlier. This would only be the case--and I'm pretty sure you don't know why TVM or what it stands for is, because you copy and pasted this sentence, but we can discuss time value of money if you'd like--if it bid up the discount rate (think of it as a risk-adjusted opportunity cost to value expected future cash flows in today's dollars). That could happen, realistically, if people demand a higher premium for the tail risk of higher inflation. That's not the case if inflation expectations are well-anchored.

Then the real or estimated changes occurring in the rates of inflation leads to changes in interest rates.

Only if it bids up the inflation risk premium. But, even then, it bids up NGDP expectations if that higher inflation risk premium is seen as a function of stronger demand, rather than weaker supply, so it nulls out.

Which then leads me to my next argument that:

- Inflation decreases the purchasing power of a dollar and it's deprecation.

This is totally and completely wrong, and I rebutted it thoroughly above. I've also rebutted it when chang and others raised this ludicrous argument.

The value of the dollar is a function of global economic fundamentals. Period. The inflation rate might have varying implications for the value of the dollar, but there would literally need to be Zimbabwean-esque levels of out-of-control hyperinflation. The US, Japan, etc. are currency issuers and borrow in the currency they issue, so there's no need to literally "print" wheelbarrows full of cash, so this is impossible.

Also, inflation leads to a handful of consumers in making extensive speculation to derive advantage of high price levels.

This is copy and pasted, FYI. You should really learn to cite your sources.

So high inflation leads to speculation in asset markets...... really now? Last I checked, affluent people fund thinktanks pushing tight-money policy because higher inflation reduces the real value of their financial assets.

I don't think you really know what speculation is. Speculation is taking advantage of mispriced securities to profit of the differential from fundamentals. There's nothing intrinsically wrong with speculation unless we're getting into a pump-and-dump scheme--totally unconnected from reality.

Inflation is merely bad socially, and for the economy.

Lol, total bullsh1t. No it isn't. I wrote two giant posts on why this is the case.

I'm just trying to get some persuasive arguments for this damn paper. -.-

Okay, well, I'd suggest you get a different topic--or flip on it--because these arguments are terrible. Any half-decent professor will see right through them.

At 1/26/2016 4:20:35 AM, Rosalie wrote:So, like I said, I merely arguing as to why inflation is bad. I mean, like you stated, it can be good or bad, depending in the circumstances.

Then categorically condemning inflation as "bad" is a really bad idea.

I understand how some of my arguments may have been flawed up above, but they aren't wrong. They are all reasons as to why inflation is harmful.

But they are wrong. Some of them are patently wrong--take your argument on exports, for instance. It's true that, holding every else constant, a rise in prices in the US would reduce exports: but it would also cause the currency to depreciate, which would tend to boost exports. And then inflation would rise, bidding up nominal interest rates, which would cause the currency to appreciate, exports to fall, and continue until the so-called "long run" condition sets in and exchange rates are determined solely by fundamentals.

Then you said that it erodes wealth and exacerbates inequities. That's patently wrong: monetary policy has no distributional effects over any meaningful time horizon.

Then you said it discourages savings. I ripped that apart, too.

They're arguments, sure, and really bad ones at that.

Now, what about these ideas--

-Price inflation has an immense effect on TVM.

This is connected to the argument I made earlier. This would only be the case--and I'm pretty sure you don't know why TVM or what it stands for is, because you copy and pasted this sentence, but we can discuss time value of money if you'd like--if it bid up the discount rate (think of it as a risk-adjusted opportunity cost to value expected future cash flows in today's dollars). That could happen, realistically, if people demand a higher premium for the tail risk of higher inflation. That's not the case if inflation expectations are well-anchored.

Then the real or estimated changes occurring in the rates of inflation leads to changes in interest rates.

Only if it bids up the inflation risk premium. But, even then, it bids up NGDP expectations if that higher inflation risk premium is seen as a function of stronger demand, rather than weaker supply, so it nulls out.

Which then leads me to my next argument that:

- Inflation decreases the purchasing power of a dollar and it's deprecation.

This is totally and completely wrong, and I rebutted it thoroughly above. I've also rebutted it when chang and others raised this ludicrous argument.

The value of the dollar is a function of global economic fundamentals. Period. The inflation rate might have varying implications for the value of the dollar, but there would literally need to be Zimbabwean-esque levels of out-of-control hyperinflation. The US, Japan, etc. are currency issuers and borrow in the currency they issue, so there's no need to literally "print" wheelbarrows full of cash, so this is impossible.

Also, inflation leads to a handful of consumers in making extensive speculation to derive advantage of high price levels.

This is copy and pasted, FYI. You should really learn to cite your sources.

So high inflation leads to speculation in asset markets...... really now? Last I checked, affluent people fund thinktanks pushing tight-money policy because higher inflation reduces the real value of their financial assets.

I don't think you really know what speculation is. Speculation is taking advantage of mispriced securities to profit of the differential from fundamentals. There's nothing intrinsically wrong with speculation unless we're getting into a pump-and-dump scheme--totally unconnected from reality.

Inflation is merely bad socially, and for the economy.

Lol, total bullsh1t. No it isn't. I wrote two giant posts on why this is the case.

I'm just trying to get some persuasive arguments for this damn paper. -.-

Okay, well, I'd suggest you get a different topic--or flip on it--because these arguments are terrible. Any half-decent professor will see right through them.

Sorry for grammar errors if any, using my phone.

I can't change my side! I have to write a paper, and debate the topic! TvT these were the best arguments I could find, so it looks like I'm going to lose either way.

" We need more videos of cat's playing the piano on the internet" - My art professor.

"Criticism is easier to take when you realize that the only people who aren't criticized are those who don't take risks." - Donald Trump

At 1/26/2016 5:05:27 AM, Rosalie wrote:I can't change my side! I have to write a paper, and debate the topic! TvT these were the best arguments I could find, so it looks like I'm going to lose either way.

At 1/26/2016 5:05:27 AM, Rosalie wrote:I can't change my side! I have to write a paper, and debate the topic! TvT these were the best arguments I could find, so it looks like I'm going to lose either way.

Sounds like it.

I'm debating this tommorow, in front of 100 plus people, and you're saying none of my arguments are persuasive? I trust you on this since you're the Econ Messiah..

" We need more videos of cat's playing the piano on the internet" - My art professor.

"Criticism is easier to take when you realize that the only people who aren't criticized are those who don't take risks." - Donald Trump

At 1/26/2016 5:05:27 AM, Rosalie wrote:I can't change my side! I have to write a paper, and debate the topic! TvT these were the best arguments I could find, so it looks like I'm going to lose either way.

Sounds like it.

I'm debating this tommorow, in front of 100 plus people, and you're saying none of my arguments are persuasive? I trust you on this since you're the Econ Messiah..

Yes, I am saying that.

I mean, the chances of your opponents knowing nearly as much as I do on this (and that's not to sound condescending, but my credentials on this stuff--which I'm unwilling to disclose in a public forum--are pretty fcking pronounced) is slim, if not zero. But, yes, the arguments are incredibly unpersuasive and just wrong.

If I were you, I'd read up on the 1970s: it's sort of a strawman of the opposing side, but it'll do for an ignorant crowd/ignorant opponent. Then read about Paul Volcker, and the fact that he pushes the unemployment rate north of 11 percent and the federal funds rate above 20 percent to push down on that inflation timebomb.

The wealth distribution argument is horrible and refuted by basic macro. The NX argument is just circular sh1t, but it might fly with an inexperienced crowd. I'd make efficiency arguments, tbh: a stable price level brings "certainty" or whatever. The savings argument is crap, though.

(1) Poses a shock to relative prices depending on how sticky they are. Wages tend to be stickier than prices, so higher inflation reduces real wages, which is particularly harmful for lower-income people on fixed incomes.

(2) This is sort of the "shifting the goalposts" piece: argue against unruly, variable inflation, not "any" inflation. If you could build a case that inflation is bad in excessive amounts--menu costs, shoeleather costs, etc. etc.--that might be enough to shift unsuspecting judges.

(3) Price-level uncertainty screws with businesses making hiring decisions and consumers making spending decisions: this is because both price setting and nominal-wage contracts are set in accordance with expected inflation. If inflation is high, it tends to be more variable and harder to control due to these losses in efficiency, so that screws with expectations and creates more "uncertainty" amongst businesses.

(1) Poses a shock to relative prices depending on how sticky they are. Wages tend to be stickier than prices, so higher inflation reduces real wages, which is particularly harmful for lower-income people on fixed incomes.

(2) This is sort of the "shifting the goalposts" piece: argue against unruly, variable inflation, not "any" inflation. If you could build a case that inflation is bad in excessive amounts--menu costs, shoeleather costs, etc. etc.--that might be enough to shift unsuspecting judges.

(3) Price-level uncertainty screws with businesses making hiring decisions and consumers making spending decisions: this is because both price setting and nominal-wage contracts are set in accordance with expected inflation. If inflation is high, it tends to be more variable and harder to control due to these losses in efficiency, so that screws with expectations and creates more "uncertainty" amongst businesses.